Government Moves to Clean Up Real Estate Sector

Foreign Real Estate Agents Barred from Directly Operating in Indonesia. Local Agents to be Better Regulated.

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(12/26/2008)

Bisnis Indonesia recently carried an article indicating that the government is preparing to intervene in the country's property industry following the issuance of new regulations forbidding foreign companies from operating in real estate sector.

Prior to the appearance of one of the first professional real estate brokers, such as Procon Indah in the 1980s, property transactions took place directly between buyer and seller or via informal middle men. The nation's fast expanding property sector brought with it a call for greater professionalism in the finalization of property transactions which, in turn, precipitated the appearance of a multitude of property agents over the past two decades.

The fast expansion in property transactions has witnessed a growing role for foreign companies in the real estate sector. Initially acting only as consultants and managers for new developments, foreign property consultants gradually morphed yheir roles to include lucrative marketing and brokerage activities.

The Chairman of the Indonesian Association of Real Estate Brokers (AREBI), Tirta Setiawan, described this historical progression: "This condition has prompted complaints from long-established local brokers. Many foreign agents have freely come on the scene. First they acted as consultants, but in the end they became agents as well." Tirta said that a lack of control characterizes the Indonesian real estate industry, where companies, both local and foreign, freely form and dissolve brokerships at will.

Acknowledging this situation, the government plans to bring order to the entire real estate sector via a new regulation signed by the Minister of Trade, Mari Elka Pangestu, on August 21, 2008. That regulation forbids foreign real estate brokers from operating in Indonesia except in association with a local company under a franchise agreement. Those regulations also aim to survey and bring some order to the many local brokers now in operation within the first year of the regulation's introduction.

During this same year, property brokers in Indonesia are given a one year grace period to follow the new operating regulations and fulfill all operating license requirements or face the prospect of being closed by the government.